from his clients' margins accounts, of course. that's how it's done, right? that's how it's done on an all-new "american greed" tonight. there's always a bull market somewhere, i market somewhere, and i will see you tomorrow. today we are enlisting the public's help to identify the two suspects. after a very detailed analysis of photo, video and other evidence, we are releasing photos of these two suspects. they are identified as suspect one and suspect two. they appear to be associated. suspect one is wearing a dark hat. suspect two is wearing a white hat. suspect two set down a backpack at the site of the second explosion just in front of the forum restaurant. >> all right. we have dramatic breaking news tonight in the boston marathon

terror investigation. authorities are calling on the public to help identify these suspects who are considered armed and extremely dangerous. good evening, everyone. i'm larry kudlow. another special edition of "the kudlow report." joined again this evening by sue he remembera. thank you, sue. >> a pleasure to be with you tonight. so, again, the fbi has just given us those pictures and the videos of those two suspects. so let's get the latest now from wnbc reporter jonathan vigliotti. he joins us now live from boston. jonathan? >> reporter: and good evening to you, and of the thousands that the fbi has been combing through, those were the photos they are now focusing on. it was a rather chilling reveal, and i want to get right into that press conference held by the fbi a short while ago where they formally introduced us to suspect one and suspect two in both photos and surveillance video, and we'll show you those in a second. take a close look. suspect one there with thect tw backwards white baseball cap.

according to the fbi they were seen together, walking together with suspicious backpacks, they are saying. they parted ways, and that is when the fbi says suspect two with that white baseball cap was seen dropping off that suspicious package, that backpack in the location of the second explosion. now let's get to that surveillance video just a few blocks away from where we're standing here on boylston street. you see the two suspects walking together, just a few frames after this is when they part ways. suspect one disappears and suspect two, according to the fbi, goes on to drop off that backpack. well, the fbi has their faces. they don't, and we want to stress them, don't have their names. along with a long list of unknowns, we don't know their ages. while they appear young, they could be dressing down and don't know their ethnic backgrounds and it's unclear what the motive is and if there's any connection to a terrorist organization. forgive me for listing a lot of unknowns, but it's also unknown at this point where the fbi stands with their intelligence,

though it's very clear that they are calling for the public to come forward with any information. they made several pleas during this press conference. that number, as we had a heard time and time against monday, 800-call-fbi, and i want to stress, larry, they were saying in the press conference, one and two, should be considered armed and dangerous. >> jonathan, thank you. as always, can i ask you, this issue of the two of these guys parted ways, parted ways. what does that mean? >> reporter: yeah. it's a good question, and to be quite frank, larry, they didn't go into a lot of detail, but from what we can gather, they were seen at one point walking together before this explosion. they had both the backpacks on, and then they separated. as we know, two explosions, two separate locations. perhaps that first suspect, suspect one, went to that first location, and then spe o, as the fbi is saying, showing on

that video or rather in those photo, going to deposit what they say that suspicious backpack at the location of that second explosion. >> jonathan, thank you very much, and we will see you once again at the end of the hour because there may be more late-breaking developments that we will get from you. let's get in the meantime to our distinguished guests tonight. joining us now is former fbi assistant director chris schwecker and the former deputy of the cia counterterrorism center philip mudd and former federal prosecutor andrew mccarthy, the author of the new book, "spring fever, the illusion of islamic democracy." mr. mudd, i'm going to go to you first, if i could. what do these images tell you? they strike me that these gentlemen were extremely confident in what they were doing, seemed to know exactly where they were going. perhaps they had rehearsed that route before. what are your impressions from the images? >> i suspect that they have rehearsed the route and the word

that strikes me is psychology. if you look at acts of violence and terrorism in this country when we get lone wolves or singletons they often have mental imbalances. when you have two or when they start bouncing off each other, will take acts this they otherwise would not have taken. i look at you and say i'm angry about something. i'm angry about obama. i'm angry about bush. person says, says, i'm angry, too. no one else is doing something. all of a sudden you have a cycle that leads to an act of violence that neither individual would take otherwise. >> i'm going to come back to that cycle of violence. mr. schwecker, want to go to you as a former assistant fbi director. according to the news reports, these two guys parted ways, okay. so suspect number two with the white hat backwards, he put the bag down and that was right near the explosion so we've kind of fingered him as the guy for the explosion. what about the first bomb explosion? they parted ways. does that mean that they were accountable for the first

explosion, or do you think there are other people accountable for the first explosion? >> well, first, larry, i think what's happened here is you've got a composite of videos from all up and down that -- throughout that area. private videos, digital image videos, so they have pieced together at least that these two were together at some point, and -- and they apparently have some video of the guy in the white hat planting a backpack. they didn't say -- they said in the vicinity of where the bomb went off. they didn't say that it was the bomb. so you've got -- i think you've got a composite of videos from all up and down that street. i wouldn't be surprise federal there's a good amount of other footage that we haven't seen. >> so you think it's possible that these two guys were responsible for those two bombs? not just one bomb but the second bomb? >> yes. i mean, i think the fact that they packaged these two together, at some point they have some video where they have seen these two do something that links them together, other than

just walking behind each other. >> andrew mccarthy, weigh in on this, because at this point last night larry and i were expecting a news conference. it had been cancelled. there were a number of not missteps necessarily, but things had been pushed back and pushed back and now we have the release of this videotape and these photos. what does that tell you? it tells me to you, anyway, that the fbi may need a little help in terms of identifying these guys obviously, but it doesn't seem to me like they would have wanted to do this. >> no. this would have been something they would have avoided doing if they felt they could have avoided doing. you would much prefer to identify the actors involved in a conspiracy quietly rather than have to broadcast to the public for a variety of reasons, most obviously once they know that the bureau knows who they are or has a beat on them, they and everybody else who may be involved with them know that

they are hot numbers and have incentive at that point to flee and destroy evidence and intimidate witnesses. it's hard enough to catch people or an event like this because they often do flee in the time between the time the atrocity happens and the time the police can complete their investigation. >> so i would assume that they are looking at video from the -- from the metro, video from the airports. ports where they could get out of the country or out of city if they wanted to. >> they are certainly doing all of that, but i think the other thing that's interesting is to go back to the question that larry asked. the purpose of this today, as i understood it, was to identify the suspects. >> right. >> not to prove the case. >> right. that's where i'm going. >> but it seems that they took a step towards trying to explain why it is that they thought that these guys were suspects, and the implication you get is that one guy dropped off the duffel bag. they were together.

there was another bombing. therefore, impliedly, what must have happened is the other one must have done -- >> but we don't know that. >> phil mudd, you know, talking about this psychology. what andy mccarthy says could be true, maybe, but there are other people involved. maybe there are other people who had these pressure cookers in the bags and put it down. maybe that was the first explosion, or maybe, mr. mudd, there's a support group out there that we don't know about. there owes a lot of unknowns here, and i'm just asking at this point do you think from your experience that these are the only two players? >> my guess is -- that these are not the only two players, there are have you few other players. this does not look like a conspiracy to me. the conspiracies i looked at involved targets that were harder, targets that were mohr more iconic, in other words someone thought through how much of a ripple effect their attack would have on the world. the boston attack to me doesn't look, for example, like a london subway which everybody around the world would recognize.

so and also, by the way, the sophistication of the weapon, so i look at this and say if it's a conspiracy i would bet a paycheck that it's relatively small. >> do you think, just to come back to this, and i don't mean to be obsessive, no one wants to talk about it, the fbi didn't talk about it at the press conference and none of the newspapers are writing about it. is it possible that there's a third or fourth person who dropped the pressure cooker together at the first explosion? is that still a possibility, or are you satisfied that these two guys did both explosions? >> i'm not satisfied, but i think that's a misinterpretation about how this investigation would proceed. if you identify one person, forget about two. if you identify one and you start looking at everything you know about that person, their phone activity, their travel activity, their visa card, everything they have done, all of a sudden the network around them appears very quickly. all you need is that one person. you don't need to prove a conspiracy from the outset. >> all right.

gentlemen, stay right there because we have a lot more to talk about. we're going to bring you all back after a quick break. more on that boston marathon bombing case coming up. >> all right. but first up, of course, the theme of our show, don't forget. free market capitalism is the best path to prosperity. that includes the rule of law which was broke erng but as we go to break, we do want to show you a great moment last evening. the boston bruins game in boston. the fans all sang along to the national anthem. god bless them. ♪ at twilights last gleaming ♪ whose proud stripes and bright stars ♪ ♪ through the peril us fight o're the ramparts we watch were so gallantly streaming ♪ [ male announcer ] when gloria and her financial advisor

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welcome back to "the kudlow report." we have breaking news tonight as the fbi does release those photos and videos of two

suspects responsible for monday's tragic bombing at the boston marathon. we are back with our distinguished guests tonight. chris, i don't think you got a chance to weigh in on larry's question before the break which is are you satisfied that it's these two individuals or given the confidence that they seem to have when walking down the street. one guy wearing the baseball cap backwards, can clearly see his face, but does that indicate to larry's point there are more people involved in this particular plot? >> well, we certainly can't rule that out. somebody could have dropped them off and picked them up. some could have been in the background buying the material for them. in the oklahoma city bombing there was a supporting cast behind timothy mcveigh so certainly can't rule it out at this point, and i think that was one of the reasons that the leak was so damaging is because it eliminated some of those investigative options that would have let the investigators

actually run with an operation if they flipped somebody. >> phil mudd, i read an account of your speech was it last night at the council on foreign relations, or two nights ago, nice job, and i always try to learn from these things. you talked about being in the grid. are these suspects in the grid? are they in the electronic grid, societal civil grid, and will that make it easier to find them? >> you already answered your own question. they were subject to the kind of video coverage we would not have had in this country ten years ago, a combination of surveillance video which we have, and maybe somebody had an smartphone that took video of them. they are certainly by definition, if they live in this country they are on the grid. traveled on the metro, used a credit card or went to an atm. the digital trail you live around your life sin escapable in 2003. >> you know, andrew, after the

fbi held the news conference and put out the number that we've been putting on our screen the website that they listed was crashed. they are already getting a lot of help and a lot of names. does that make it more difficult for them because they have to hunt down each one of those clues, or does it shorten up the time of the investigation? i've heard both sides of that. it could take more -- more time in terms of months or it could be days and hours. what does your gut tell you? >> in the past these gayses have been solved fairly quickly and getting more information even though you have to organize it is a good problem to have compared i assume to the problem that caused them to have the press conference in the first place which is that they had sort of hit a place where they weren't getting that stream of information. >> right. >> so what you have to worry about, phil is quite right, certainly in the grid. the problem is do they stay in the grid while we identify them because you -- you don't want to have a situation where you can finally prove the case, but you have no defendants --

>> wouldn't they know they are in the grid? how could they not know that there were video cameras, right, all over that area? >> cell phones and i guess they discarded them. may have disguises. >> exactly. depending on what we find out about whether they are involved in a sophisticated organization or something more low level, they don't have the sophisticate and, you know, the law enforcement know how, they don't necessarily know the consequences of the steps that they took in terms of being able to trace that back later on. >> i see. >> chris, let me ask you what happens next with the facial recognition video imaging, that kind of video, analytic software. i've heard one commentator, i mean, the kid with the baseball hat on backwards, can you see a lot more of his face. people are even talking about his distinctive ear lobes. walk us through that. you've been in this process. how is this going to work? >> yeah. i was head of security at bank of america when i retired and we relied very heavily on video to

solve bank robberies and just for general security purposes, the state of the industry is very advanced to this point. you can identify a button on their shirt if you needed to. i mean, that's the level of digital ip protocol video that you're dealing with with these private security companies. >> the earlobe idea, not to interrupt, but earlobe idea is not far-fetched. that could be the key to discovering who this kid is. >> there could be any number of minute identifying things that will tie them in later. >> philip mudd. >> no doubt. >> let me ask you. given what we just heard from chris and the quality of some of the images that we've seen, how fast do you think this investigation will be able to proceed? >> at this point my guess shs and it's in contrast to what i might have said as recently as yesterday. my guess is relatively quickly. not because, for example, we'll be able to improve the video, but when you increase exponential lit number of eyes on this target, and by that the number of people in boston who are looking for these guys, if

they haven't fled, they can't leave their apartment, and so i think just the prospect that somebody says you might get 1,000, 10,000 people calling but one of them got the right guy, my neighbor is this guy. they are going to go down. >> how can we be sure that these are the right guys? >> we can't. you know, this is not -- the arrest stage of a case is probably cause. we don't even know if we're there yet, but we're a long way from proving this case. >> we've got two kids, and they got backpacks and i guess one of the backpacks was pretty large so that could have been the pressure keerk. someone observed today that that guy was not limping but sort of walking difficult. maybe that was because of the weight-of-the-pressure cooker. just saying, the fbi must have more information regarding these two guys than to label them as suspects. >> they certainly have to have more information and obviously they have been working around portion or the main ays. significance of this exercise today, again, is to identify the suspects, not to prove the case,

and let's hope that they cannot only identify them, because i think they will do that in short order, but capture them. >> all right. gentlemen, thank you so very much. we really appreciate it. >> now, we'll get you updated on another developing financial criminal case right now. it involves employees of the irs who are in a heap of trouble tonight. that's next up on the special edition of "the kudlow report." this is america.

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24 irs employees charged with stealing government benefits. eamon javers with all the details for us. good evening. >> good evening, guys. it's a case of alleged benefit fraud committed in an unusual situation here by a group of irs employees. here's what we know as of right now. 24 current or former irs employees have been indicted for fraud, and what they did here was allegedly obtain over $250,000 in federal benefits. some of them allegedly obtained insurance payments. food stamps, welfare and housing vouchers. i'm told that most of these employees were in and around the memphis service center of the irs. a lot of these folks were low level or seasonal employees of the irs, but nonetheless, what government officials are saying is that irs employees know what they are supposed to do and what they are not supposed to do and what they say is allegedly doing is stealing these benefits,

benefits that should have been going to people who deserve them, not people who are full-time or even part-time jobs. guys? >> eamon, this is an incredible story. just real quick, what happens next? no good. he's gone. >> well, the question is did they have to pay taxes on those benefits? >> i wants to know what happens next, oversight committees. don't know anything about it. >> eamon is gone. get hell him another time. another dramatic day on wall street. that was before some big news came out on microsoft and ibm earnings and google. ibm got killed in the after market, by the way. we're going to check all the key market news for you just ahead. i'm telling you right now, the girl back at home would absolutely not have taken a zip line in the jungle. i'm really glad that girl stayed at home. vo: expedia helps 30 million travelers a month find what they're looking for. one traveler at a time. expedia. find yours.

welcome back to "the kudlow report" with larry kudlow along with sue her rare ark. the latest in the boston marathon terror bomb investigation. less than to you hours ago the fbi released pictures of two men described as dangerous suspects in the case. they are asking for the public's help in identifying. >> taking a look at images. they show two men in baseball caps and dark jackets who were seen walking together through the crowd at monday's race. the public is being asked to call a hotline. it's 1-800--call-fbi.

if you know anything about these two men. we have more on this breaking story a little bit later in the hour. but on wall street today, throw major tech companies reporting earnings after the closing bell, and they were moving in the after hours. cnbc's jackie d'angelis is here to see how they did and where they stand in after hours trading. good to see you. >> nice to see you, larry, as well. it was the tech trifecta and everybody was waiting for t.ibm, microsoft and google. reported after the markets closed on a day when the tech sector was the weakest s&p large cap sector. the software giant microsoft reported a four-cent beat on the bottom line. its earnings were 72 cents. that was on revenue of 20.49 billion, in line with estimates. keep in mind though that analyst, they have been scaling back their forecasts on microsoft in light of concerns about weakening pc sales. the company also saying that cfo peter klein, he would be leaving the company. moving on to ibm, reporting $3 a share in earnings. that was a five-cent miss that came on revenue of $23.4

billion. a weak yen was part of the issue there. that took its toll on the bottom line and google, earnings of 11.58 a share. a big beat, but revenue of 13.97 billion fell a little short of expectations. of course, helping google's bottom line was the average cost per click. it actually decreased approximately 4% year over year, but that was an improvement from the 6% decline that we saw in the last quarter. in the after hours session, let's take a look at how we're doing. ibm was lower last time that i checked. google and microsoft were htly higher. >> all right. >> jackie, thank you. we'll go right to brian westbury, first economist with first trust advisers and the joining us shortly the president and ceo of steffel nicholas. >> never, never, never. >> earnings are beating 4-1 most of these companies. >> yeah. >> revenues are lousy.

revenues are coming in below, but if i had to choose in terms of the rate of return on equity, which is what moves the stock market. >> right. >> the rate of return on equity capital, i think earnings are a whole lot more important than ref knew. i know the economy is soft. therefore revenues is soft. why aren't earnings much more important? why is wall street so obsessed with the revenues? >> the good news, larry, is that even though they talk about the revenue a lot and complain a lot about the revenues, the stock market -- we hit all-time highs this year, and we're up basically for four years in a row now, and that tells me that underneath all of this complaining and fear profits really do matter, and if you look at after hours tonight, i mean, who knows what will happen tomorrow, but the companies that beat on the profits are on the upside tonight in after-hours trading. >> profits are the mother's milk of stocks, i've said it before and revenues are not the mer's

milk of stocks. profits are. >> that's absolutely true. isn't it also true, brian, that when you look at fact that in general earnings are coming in pretty good for a large number of companies, we still look at -- look like the best looking girl at the dance, especially when you compare us to other part of the world like europe? >> that's absolutely true, sue, and i think that's one of the things that hurt more of these household name revenue numbers, with europe falling off the edge of the cliff, with the dollar soaring versus the yen. i think that's one of the key things that hit ibm today, and, in fact, they said, they still expect to hit their full-year numbers, so the bottom line is that there's lots of things -- lots of parts moving here, but net net productivity is still growing rapidly, the cloud, the smartphone, the tablet, fracing, 3-d printing. all these new technologies are still throwing off productivity, and i believe productivity larry

is what gives us the profits. >> right. >> in other words, productivity. >> cost control. >> cost control and productivity, absolutely right. >> all right. another point. i'm going to put a chart up on the full screen, i home. commodities are slumping a bit, and so are long-term interest rates. it's actually trading in a range, but a lot of people worry about rising interest rates. why they worry about that, i don't know, but they are. this chart suggests that with commodities slump, we have no fears of rising interest rates, and, therefore, we ought to just take that right off the map. >> yeah. i think gold was overvalued at 1,700, 1,800. still overvalued at $1,400 an ounce. i personally believe gold is appropriately valued at about 800 bucks. its decline does not mean the economy is going back into recession. there's some people that believe that, but we're still the plow

horse economy. that's the phrase we've used. it's not a race horse. it's a plow horse. it's still a horse. it's still growing, but our -- our economy, those productivity-enhancing technologies that we just talked about, they are fighting against the headwinds of a big government and regulation and obama care. that's really what is in a nutshell what's happening in the economy. these commodities, they are going to move up and down over time. i wouldn't read too much into them. i think inflation is going to pick up, but it's not going to be hyper inflation, which is what many people believe. >> we're bringing back jackie d'angelis who thought she was done for the evening, but we're going to put her back to work because i wanted to talk to you about technology in particular, and the fall in apple and the fact that everybody is saying that the technology market per se is really going to struggle without the leadership of a. do you think that that's correct, or has the market factored in the fact that maybe apple is just turning a bit you?

know, longer term it may be fine, but it's time had come for a retrenchment. >> well, i think the markets have taken that into account somewhat, but i will plug my show "futures now." >> absolutely. >> talking about that subject today and one of the traders and strategists today saying they thought the technology markets, the nasdaq, could continue to go lower. you have the trifecta there that we just talked about, apple going lower and a mix of companies that haven't really done that well. we've seen 72% of companies actually beating in terms of their earnings, but in the tech space i don't think the number has really been that strong, so our traders today say they were shorting the nasdaq, and our gentleman that was from morgan stanley, he was saying he was looking for the markets to actually increase long term over time with technology, but short term you could still see them move lower. >> brian, let's just wrap this up. released yesterday, forward operating earnings for the s&p

500, all right, a record high. $115 per share. >> yeah. >> that gives you 13.5 times multiple. that's well within the historical range of the last many, many decades. interest rates, as that commodity chart shows, just bouncing around in a range of the profits are beating expectations. i'm not into this revenue thing. i prefer to look at profits. >> right. >> so why can't -- so we'll correct and then we'll move on. >> we've done -- last year. we did it twice, the s&p 500 corrected about 7.5% roughly from peak to trough twice in 2012. we corrected about 18% back in 2011. another roughly 18% in 2010, and every time the market hit bottom and turned around and went to new highs. i expect that to happen right now. the stock market is cheap. if you adjust for really low interest rates, it's as cheap as it was in the early '80s or in

the early 2009. i don't see any problem that's going to lead to a recession in the economy. >> ron cashefski timely showed up. i watched his advertisements now and the guy is famous. he's a household word. ron, unfortunately, flat out of time, but i'll just give you a chance. i am an optimist. brian westbury is an optimist. what's your take. >> look, larry, get to a fork in the road. if it's deflation we've got a problem and any growth scenario, equities are under valued pure and simple. market has been almost straight up throughout the year. this has been a health correction. the s&p 500 will be higher at end of the year than it is today. there you go. >> there you go. >> bingo. >> best smile in the business. flash that smile one more time. you've got to see these ads. they are all over the place, i love them. >> well, we owe him an extra spot. >> more time next time. >> deal. >> thanks, guys, to all of you.

appreciate it very much. >> great to be with you, sue and larry. >> turns out very big harvard mistake makes its way into a key harvard economics study that has influenced economic austerity and debt throughout the world. i don't know. my take, mistake or no mistake. where's the plan for economic growth. that's going to get us out of this mess. have that debate coming up right away. stay with us. kudlow and herrera. i know what you're thinking... transit fares! as in the 37 billion transit fares we help collect each year. no? oh, right. you're thinking of the 1.6 million daily customer care interactions xerox handles.

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all right, a hot topic in the world of economics. two eminent harvard economists have created a social media firestorm because their famous study claims countries see their debt-to-gdp ratio climb above 90% and growth then slows dramatically. yet, a team of researchers from the university of massachusetts at amherst found computing errors in their work. whoa. so do we hav a harvard mistake here, and has that mistake led us down a wrong road to a harvard austerity? here now to talked is a former reagan deputy assistant

secretary of the treasury and joe lavorgna, cnbc contributor. let me go to david malpass. their argument was 90% depth-to-gdp means the economy is going to fall but the upstarts from umass amherst say 90% of gdp, not great but you can still grow it over 2%. have they misled the world? >> hi, larry. well, i think it's pretty clear that when the governments grow bigger you get less growth. you're killing jobs and you're hurting the growth outlook, so that's what the debate is about, so people want to attack the study as a way to defend big government and more government spending. that's going on in washington all week with the imf annual meet >> joe, just on the numbers here. there's a difference between 2.2% which is what the amherst people, the umass people are saying and minus 0.9. one is a small recovery. the other is a recession, and after all, want it them using

this formula, negative growth if it gets to 90%, they are the ones particularly advising europe with all the european austerity, with the tax hikes, for example, that have thrown europe into a double dip recession. >> yes, larry. the austerity certainly has been an issue and a lot of prominent policy-makers cited the results as evidence to pursue these types of policies. the difference between two-2-.2 and minus a point is quite -- minus .1 is a rather big number, especially cumulatively over time with compound from interest and things of that sort. this is a big faux pas, if you will, certainly not any levels necessarily that will cause the economy to weaken, as david was saying. this is an issue locker term about government spending and what not, but this is a real mistake. >> all right. >> dave malpass, i want to know

this though. there's economics here and there's politics here, so if you crush the study, you say the study was no good, numbers are no good, they acknowledge by the way that they made mistakes though they have not acknowledged that their analysis is wrong, but does this open the door and give a free pass to free spending you? know, the paul krugmans of the world on the far left, the joe stiglitzes of the world, they will take the new umass study and say we told you so. let's forget about the debt, spend our way into oblivion, kind of like what obama did in 2009 and 2010. >> yeah, and they are using that to cover up a lot of problems. bad government is at the root of the slow recovery, and i have to go back to the european situation. you know, they call it austerity, but you've got to make the distinction between whether you're talking about higher taxes or less government spending. if you reduce government spending, the private sector is encouraged. it's just like a tax cut whereas if you raised countries which is

what all the european countries are doing and that's getting covered up in all this debate about austerity. >> joe, what david is saying is right. the harvard guys are just saying is get your debt down no matter how you do it, but it does matter how you do it. you can't tax your way into prosperity, you can't tax your way into growth, and, in fact, i think it's growth that solves debt. debt doesn't solve growth. i think the harvard geniuses got the story completely wrong in the first place. >> layer, in goes in both directions, no question. it's not just the spending, but also getting the growth to get the tax revenues up and having a system that produces the revenues that you want to provide the social or government services that you desire, so, yes, there's some major problems here. again, i think -- i don't like certain levels of 90%. i mean, if we were to add, for example, the gses to treasury holdings and say this is sort of what the government is effectively backstopping, we're

at 120% government debt to gdp. >> if we don't fix the entitlements we'll be at 200%. >> you're right. it will get worse. >> japan's at 245% debt-to-gdp ratio but the problem is they are growing slowly and now the imf and the keynesians are pushing them to raise the value-added tax a lot which it looks like they are going to do which will kill growth and make the whole situation worse. >> the harvard guys want to raise taxes. >> they want it. >> and this is the thing. you want to grow out of this thing, okay. limit spending. how about flat tax reform and privatization, deregulation, how about a stable currency? in other words, dave malpass, these harvard people really gave europe lousy advice, and europe is paying for that lousy advice, even though their numbers were wrong. now they have been uncovered. i don't know if europe will ever change. >> the whole game is to try to get government bigger, and even if that causes or as it causes the private sector to get

smaller. that's true in japan and true of europe's periphery, and it's called austerity but really what we're talking about is higher taxes and bigger government. that's what's killing growth around the world. >> all right. a pity they can't do their arithmetic. harvard mistakes and harvard austerity. thank you, gentlemen, we appreciate it. all right. up next. another shocker. could this be art laugher in favor of a new tax? be still my heart, be still. dr. laugher joins us next to explain himself. card hassles?

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oh, my gosh, a total bone crusher. imagine waking up in the morning to see a great op-ed piece by my great friend art laugher supporting a new tax saying it would be good for growth. let's ask the aforementioned former economic adviser art laugher of art laugher investments. art, tell me it isn't so. your piece today "tax internet sales." you want to raise taxes now. art, you've never heard this before. how can this be? >> you haven't heard it yet, larry, because it's not true. i didn't make the title of that article, just let me say that, but what i do think is all sales in a state should be taxed at same rate. outsiders shouldn't get an advantage over insider but what i think they should do is make it revenue neutral and lower the sales tax rate, just the amount of the new sales tax revenues from out-of-state

sales. this internet stuff that's tax-free is just not fair competition. should have a level playing field and keep all tax revenues statistically revenue neutral. that's what i would like to see. you agree with me on that. >> i don't but i'll let sue herera take the new pitch. >> i see your point about leveling the playing field. look at a company like best buy, a lot of times what people do, go in, brows the store. >> exactly. >> but they don't buy at store. they go buy on the internet, and in many cases they don't pay tax on that so that, larry, would be my only justification for raising the tax, right? >> well, that's the point for making it a level playing field. i don't think that any company should get -- not have to pay sales taxes just because they ship it in. i think all sales should be taxed at the same rate, that's period. you should lower all rates to make it static revenue neutral. there shouldn't be lots of loopholes. just like the income tax, larry. have you a flat tax, but tax all income at one rate, and that's the exact way you should do it

on sales in the state. >> i agree with that. >> pretty straightforward. >> i agree with the flat tax part and agree with what sue said. >> flat tax in states. >> i've got a political message for you, my friend. if you start taxing interstate internet sales, you wanted to start taxing that, are you going to build up the biggest government bureaucracy in the states and the federal government in the history of the earth. you are going to give them tax money, and they are going to spend their keithers o ekeister. you think they will use that for lower marginal tax rates, i've got a message for you, you're opening the floodgates for a big government tax grab that you've never seen the likes of before. >> i defer to your political judgment all the way, but i think all sales should be taxed at the same rates and lower the rates to make it revenue neutral. that's the right way to go. if you can do both of those together, that's what i would like to see and sooner or later -- what's the federal government doing telling states

what they can and cannot tax, that i think is also correct. i don't think it's a washington decision. >> to larry's point a lot of these states are in very difficult times right now, and they might not do what larry or you would consider tonight appropriate thing with money. >> we can make that requirement. i mean, it's a federal law that exemption -- >> how is that going to work? >> the tenth amendment won't permit that. arthur, let's be serious about that. where do you think this money is going to go? do you think the governor of california, a state from which you moved in part, you think governor brown -- >> you think he cares whether it's internet sales? >> come on, jerry brown doesn't have to do this. jerry brown can raise taxes -- but he raises them anyway, larry. the question is sales taxes in california are a differential depending on when they come in or out of state. jerry brown has raised every tax that walks, crawls, swims, everything. you can't stop that man fromration taxes. >> now you want interstate. >> why do i want to do it with

this? why not make a level sales tax. >> you want interstate internet sales taxes. there's so many jurisdictions in this country. you're going to have to create a second irs on that in order to keep track that have. >> very clear on that in the article. one jurisdiction period for a state, for internet sales. i do agree, can't have it for every zip code and local sales tax but you make it for one rate for the whole thing. i think that would work perfectly. >> ought, i need you -- arthur, i need you to get off this. this is going down the wrong road. >> one thing if i may, please. >> corporate tax reform and you are the master at designing it. that's the greatest thing for america. give me a corporate taxr large and forget about all this internet sales tax. >> i will do that, i promise you. >> all right. we're leaving it there. glad we solved all of this. thank you art. >> glad we did. >> good to see you. >> thank you, larry. >> bye-bye. >> we are going to go back to boston for one more final report

tonight. jonathan vigliotti joins us live from boston once again this evening. i know it's a fast moving story and a fast developing story. bring us up to date, jonathan. >> yeah. the fbi releasing those photos of who they are calling two suspects. let's get right into it. the photos at this point seen around the world and released by the fbi just about three hours ago. they are describing this, calling these suspects, suspect one and suspect two. look at the photos closely. see suspect one there with a black baseball cap. suspect two wearing a white backwards baseball cap. according to the fbi they were seen walking together in the moments leading up to the explosions carrying suspicious backpacks. they parted ways, but surveillance video captured suspect two dropping off a baseball bag or a backpack on the ground near the location of where the second explosion took off. i want to show you thihe surveillance video they are also releasing. the fbi specifically wants to you focus on the way they are holding themselves, how they are

behaving, how you see them and do you know them? right now the fbi knows their faces. they don't know their names. we don't know their ages, what their ethnic backgrounds may be and also unclear the motive and if there is any connen to a terrorist organization. what is clear, the fbi wants to hear from anyone that has any information that could lead to an arrest. that phone number is 800-call-fbi. we can tell you already a number of phone calls, we are told, have been coming in with names. the fbi will continue to focus and trace any of those leads. meantime though, sue and larry, they are saying that these two gentlemen could be armed and dangerous. >> jonathan vigliotti, thank you so much, jonathan. we appreciate it. and i know, larry, that there's going to be a lot more developments in the next 24 hours. we'll be updating everybody on them as they become available. >> and the public is already pitching n.how many phone calls? >> they are already getting quite a few phone calls, and right after the news conference a number of people logged on to the fbi website where they could

take a closer look at those photos and it crashed the website, so the public is responding the way the fbi wants it to. >> thanks, folks. that's it for tonight's show. we will be covering this story as long as it goes on. many thanks to my friend sue herera for helping out. i'm larry kudlow. we will be back tomorrow night.

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